Payment of benefits does not excuse unreasonable delay

An insurance policy rests on a simple promise: when an insured makes a claim, the insurer will pay what it owes fairly and promptly. Many insurance disputes arise from the insurer's failure to pay benefits owed under the policy. But the unreasonable failure to timely pay benefits may, alone, support a bad faith claim against an insurer. This principle was recently reaffirmed in the Second District Court of Appeal's decision in Bornoff v. State Farm General Ins. Co.

California's prompt claims handling requirements

Resolving a claim without undue delay is a basic requirement under California law. The California Insurance Code contains several regulations that govern prompt claims handling. Within 15 days of receiving notice of a claim, an insurer must acknowledge the claim and begin any necessary investigation. (10 C.C.R. § 2695.5(e).) After receiving proof of a claim, an insurer must make a claim decision within 40 days. (10 C.C.R. § 2695.7(b).) If more than 40 days are needed, the insurer must provide status letters every 30 days advising the insured why more time is needed. (10 C.C.R. § 2695.7(c)(1).) These regulations exist to ensure the timely handling of claims.

The prompt resolution of claims is essential. The reality for many insureds is that "slow pay" can be the equivalent of "no pay." If an insurer fails to make timely payments, the insured often suffers harms and disruptions to their personal life or business affairs. Delayed payment may prevent an insured from fixing their car or repairing damage to their bathroom or kitchen. Or it may prevent an insured from reopening their business. When claims are not promptly resolved, the burdens and expenses imposed on insureds can add up quickly.

Insurers, on the other hand, tend to benefit from delayed payment. Insurers invest the premiums they receive from their insureds and generate income from investment returns. Holding onto premium dollars longer can mean more investment gains. Even a few thousand dollars can add up fast when the insurer handles tens of thousands of claims per year.

Delayed payment can also increase the pressure on the insured to accept less than what they are owed under the policy. In order to repair their home or reopen their business, the insured may accept a smaller payout than they are entitled to. Delayed payment can also increase the costs for an insured. After weeks or months of being stonewalled, the insured may retain a lawyer to negotiate with their insurer, which will cost the insured additional money in the form of attorneys' fees. As a result, even where benefits are eventually paid, the insured suffers additional losses due to the insurer's delay.

The Bornoff decision

The Second District Court of Appeal's recent decision in Bornoff v. State Farm provides an overview of the remedies available to an insured where the insurer unreasonably delays paying benefits. (Bornoff v. State Farm General Ins. Co., May 1, 2026, B339796.) Although unpublished, the decision provides a helpful explanation of the governing law regarding bad faith actions based on an insurer's failure to timely pay.

In Bornoff, the insured's store was burglarized. The insured provided their insurer documentation showing loss of business property and business income. The insurer did not dispute the claim was covered, but it proceeded to drag out resolution. After the insured failed to receive timely responses from her insurer, she hired an attorney to push the claim forward. The attorney sent further documentation showing the covered losses suffered by the insured. The insurer did not respond. After follow-up letters and calls went unanswered, the insured filed suit against the insurer, alleging breach of contract and bad faith. Shortly after the lawsuit was filed, the insurer paid the full amount of benefits.

A central question on the appeal was whether the insurer's delay in paying benefits was actionable. Since the insurer eventually paid all benefits owed, the insured conceded the breach of contract claim, as all benefits due under the policy had been paid. The question for the court was whether the insured could continue to pursue a bad faith claim based on the unreasonably delay in paying benefits. Relying on several published cases setting forth settled California law, the court held that such a claim is actionable, provided that the insurer's delay caused the insured to suffer economic loss.

The court identified two separate types of economic loss that the insured suffered as a result of the insurer's delay. The first type of loss was Brandt fees, which are attorneys' fees that are recoverable where an insurer unreasonably delays or refuses to pay benefits owed. The theory behind Brandt fees is that when an insurer's unreasonable conduct compels an insured to retain an attorney to recover benefits, the insurer--not the insured--should bear the cost of those fees. The attorneys' fees that the insured in Bornoff incurred were thus a form of economic loss.

The second type of economic loss identified in Bornoff centered on the economic costs to the insured's business. As a result of the delay in paying benefits, the insured incurred borrowing costs to keep her business going while the claim was resolved. This was another form of out-of-pocket damage that resulted from the insurer's delay. In both instances, the court explained that these items of damage were recoverable because they resulted from the insurer's unreasonable failure to pay benefits owed.

Conclusion

Timely payment of benefits is part of what an insured purchases. And the Bornoff opinion provides a helpful synopsis of the law governing bad faith actions based on the insurer's failure to resolve claims on a reasonable timeline. When an insurer unreasonably delays payment, the economic harms that result to an insured are recoverable. These can include fees incurred to obtain the benefits or other forms of loss that the insured suffers due to the prolonged delay. The bottom line is that the delayed payment of benefits does not insulate the insurer from a bad faith claim.